January to be Busiest Month for Bond Sales in 7 Years

The anticipation of rate cuts to come this year is making for a busy bond month to start 2024. Now, regional banks are adding to corporate bond sales, according to data from Bank of America. Per the Reuters report, January “has already seen $151 billion in new IG corporate bond supply,” based on data from BMO Capital Markets.

Thus far, every week in the new year has already exceeded supply expectations. So higher issuance confirms the optimism that rate cuts are ahead. If that’s the case, corporate bond investors may want to lock in higher yields now before cuts eventually arrive.

January could go down as “the heaviest January on record,” according to Dan Krieter, BMO director of U.S. investment grade strategy. That means this month will top the $175 billion in January seven years ago. That further confirms demand for this asset class is heading in an upward trajectory.

“Despite the torrid pace of supply this year, demand remains exceptionally strong with January seeing the lowest new issue concessions for any month since 2021,” Krieter said. He added that even high-risk bonds are seeing greater demand as “evidence of the insatiable appetite for risk.”

As opposed to getting individual corporate bond exposure, another option investors can choose is an ETF that can provide all-encompassing exposure.

A Fund of Funds Solution

One option is a fund of funds solution. This is available in the Vanguard Total Corporate Bond ETF ETF Shares (VTC), which seeks to track the performance of a broad, market-weighted corporate bond index.

Additionally, VTC is a employs an indexing investment approach designed to follow the performance of the Bloomberg U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable corporate bond market. The index includes U.S. dollar-denominated securities publicly issued by industrial, utility, and financial issuers. The fund comes with a low expense ratio of 0.04%. As of January 19, it has a 30-day SEC yield of 3.83%.

Summarily, VTC offers:

  1. Performance tied to the Bloomberg U.S. Corporate Bond Index
  2. Broad, diversified exposure to the investment-grade U.S. corporate bond market
  3. A unique ETF of ETFs structure comprising funds like the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH), the Vanguard Interim-Term Corporate Bond ETF (VCIT), and the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT)
  4. An intermediate-duration portfolio with exposure to short-, intermediate-, and long-term maturities
  5. Current income with high credit quality

For more news, information, and strategy, visit the Fixed Income Channel.